Commodity prices will be impacted in the short-term by Chinese growth, the eurozone crisis and slow OECD growth, according to Rio Tinto's chief economist Vivek Tulpule. The eurozone crisis will continue to escalate and will be deeper and last longer than previously assumed, Tulpule said in a recent presentation.
Rio expects growth in China to be above 8% this year despite lower export demand and monetary tightening, but Tulpule said economic activity should accelerate over the second half of the year.
In the longer-term, Rio expects Chinese demand for steel to remain strong as its population continues to urbanise. "A Chinese urban household has 10-15 times more steel intensity than a rural household," Tulpule said.
Multiple factors will continue to constrain iron ore supply in China, including higher domestic production costs and limited supply. Under 200m tonnes of new global iron ore capacity out of a projected 800mt was completed by Q1 2012, the miner noted.
Rio sees Chinese economic growth slowing from 8-9% in 2012-2015 to 7-8% in 2016-2020. From 2020 onwards Rio expects growth to fall to 5-6% as urbanisation slows but consumption rises.
© Steel Business Briefing 2012